April 23, 2006

Hungary’s Socialist-led coalition retains power

By Balazs Koranyi

BUDAPEST (Reuters) - Hungary's Socialist-led coalition has
won a stronger platform to launch vital economic reforms by
becoming the country's first government to retain power at the
polls since the fall of communism in 1989.

The Socialists and the Alliance of Free Democrats increased
their majority from 198 to 210 seats in the 386-member chamber
on Sunday in the second round of a general election,
projections by the election commission showed.

The projections put the centre-right opposition Fidesz
party and its leader, former Prime Minister Viktor Orban, on
164 seats -- four fewer than in the previous parliament.

The victory is a personal triumph for 44-year-old Prime
Minister Ferenc Gyurcsany, who rescued the Socialists from what
looked certain defeat when he became premier in 2004, and
provides him with a mandate to push through reforms.

"We understand the responsibility we have been given. We
have to create a better, more successful Hungary that is better
to live in," Gyurcsany, a millionaire businessman, told
hundreds of ecstatic supporters, some waving the national flag.

His key test is to convince investors holding billions of
dollars of Hungarian bonds and the European Union that Hungary
will finally take action to cut its budget deficit, the biggest
in the EU relative to the size of the economy.

That deficit, which economists say could soar to 8 percent
of gross domestic product this year, has prompted several
warnings from the EU and economic analysts say it could lead to
a forint and bond sell-off if action is not taken quickly.

Gyurcsany gave no hint of his plans on Sunday but was
expected to hold a news conference on Monday. He might not act
on the budget immediately, especially as he faces municipal
elections later this year.

"I think there is a certain amount of leeway in the budget
... anything from here can only get better and the right
rhetoric will be positive for the market," said Tania Kotsos at
the Royal Bank of Canada.


Gyurcsany has paid lip service to the need for reform but
has so far avoided taking tough decisions which might prove
unpopular with voters. But Economy Minister Janos Koka, a Free
Democrat, was quick to offer suggestions on Sunday.

"In the public sector, we can achieve savings of 10
percent, which could mean 180 billion Hungarian forints. We
have to start work on day one by cutting the number of
ministers to 10-12 from 17," Koka said.

Koka also proposed slowing down motorway construction.
Other economists have suggested raising the lower value-added
tax rate to 20 percent from 15 percent to generate revenue.

But any move is likely to fuel opposition from Fidesz,
which based most of its campaign on an argument that if the
Socialists won, economic crisis would soon follow.

"Here comes austerity," Zoltan Foti, 24, an unemployed
Fidesz supporter said.